What is Norbert’s Gambit?
In simple terms, Norbert’s Gambit is a way to convert currency from CAD to USD or the other way around. It costs much less than using the bank. It does this by using ETFs. Since some ETFs are in USD and others are in CAD, you can purchase in one currency and then sell the ETF in the other currency. By using this strategy, you avoid bank and foreign exchange fees. You only need to worry about the standard commission fees.
Is Norbert’s Gambit Legal in Canada?
In short, yes. Norbert’s Gambit is legal in Canada. Most Canadian brokerages will allow this strategy since many ETFs are listed on both the Toronto Stock Exchange and the NASDAQ. Plus, this strategy can be used with a variety of different accounts, including:
- Non-registered accounts (non-registered margin accounts)
- TFSA accounts
- RRSP accounts
However, like with any investment strategy, there’s always a risk. Whenever you buy and sell, you always need to consider the possibility of a loss. That said, a strategy like this isn’t recommended for amounts that are $1,000 or less. It’s more recommended for higher amounts.
How to do Norbert’s Gambit?
While the idea of Norbert’s Gambit can seem complicated, it’s actually simpler than you may think. Here’s an example of how to do Norbert’s Gambit, along with the saved fee vs the typical way to exchange funds.
Norbert’s Gambit
When it comes to Norbert’s Gambit, there will always be currency exchange fees. That said, you can save on many other fees by using this method. Most companies have shares on both the US and CAD exchanges, so brokers usually realize what you’re doing. They actually have a specific term for it: journaling.
To start, choose a platform that supports journaling. Not all do, and some require contact to complete the process. However, many can just perform the process, and that’s the ideal platform to choose.
To complete the process, you also need an investment account that offers both Canadian and US holdings. You will likely need a US bank account, so finding the right financial institution is key.
For this example, let’s say weare converting US currency to CAD. What you want to do is purchase the US version of the investment on the Toronto Stock Exchange (TSX). As soon as it’s completed, you can initiate the sale in CAD for the stock you purchased in USD. It will then be sold in the same version of the shares, but in CAD.
Once this is done, you may have to wait one or two business days to access your money. Once you have access, you can cash out and use the CAD currency fund. You can also do the same if you’re converting CAD into USD, just in reverse.
The cost for a conversion like this is typically just a trade cost of $10 to $15, since you don’t have to worry about any conversion fees. If we’re doing this for $2,000 and the conversion fee is 1%, your fee will be $20, plus any other fees the bank charges. So you can already see the savings.
Foreign Exchange Fees in Canada when Investing
Foreign exchange fees in Canada vary depending on the brokerage you use and the currency that you’re converting to. Keep in mind that this only applies if you purchase an investment in a different currency.
When you open a brokerage account, you’re going to have a base currency. If you use this base currency, you won’t be charged any currency conversion fees. However, for example, if you purchase a US dollar currency ETF in CAD, you will be charged. This is because the brokerage has to convert the currency.
How much you’re charged for currency conversion is based on how much the currency costs and how much money you’re converting. For many brokerages, the lower the amount you’re converting, the higher the fees will be. The more you exchange, the lower the fees will be. Norbert’s Gambit is an effective way to avoid these fees.
The Fee for Converting CAD to USD in Questrade
One of the most popular brokerage platforms right now is Questrade. Like other brokerages, they charge brokerage fees when they have to convert currencies. Their standard fee to convert CAD to USD is 1.5%. It is included in the total foreign exchange rate and is seen when you make the conversion. Because this fee is shown upfront, there are no hidden fees.
Full List of Platform Fees
| Investing Platform | Mutual Funds Fees | ETF Fees | Stock Fees |
| RBC Direct Investing | $0 | -$0 on many ETFs-$9.95 per trade for fewer than 150 trades per quarter-$6.95 per trade for more than 150 trades per quarter | -$9.95 per trade for fewer than 150 trades per quarter-$6.95 per trade for more than 150 trades per quarter |
| BMO Investorline | Commission Based | $9.95 per trade | $9.95 per trade |
| TD Direct Investing | $0 | $0 | $9.99 per trade |
| Questrade | $9.95 per trade | $0 | $0 |
When it comes to currency conversion fees, each platform has its own rates. Let’s take a look at each.
RBC Direct Investing
With RBC, they base their foreign currency rates on how much you’re converting. These are their standard rates.
- $0 to $24,999 – 1.6%
- $25,000 to $99,999 – 1.0%
- $100,000 to $499,999 – 0.6%
- $500,000 to $999,999 – 0.4%
- $1,000,000 to $1,999,999 – 0.2%
- $2,000,000.01 and up – 0.1%
BMO Investorline
BMO Investorline is another brokerage that bases its conversion fees on the amount being converted. The amounts are different from RBCs.
- $0 to $25,000 – 1.6%
- $25,000 to $74,999.99 – 0.9%
- $75,000 to $99,999.99 – 0.8%
- $100,000 to $249,999.99 – 0.5%
- $250,000 and above – 0.04%
TD Direct Investing
Unlike other direct investing brokerages, TD’s foreign currency conversion fees aren’t listed. You have to be registered with TD Direct Investing to see the rates. However, they are based on amounts just like the other brokerages.
Questrade
Unlike other brokerages, Questrade doesn’t base its foreign exchange fees on the amount that is being converted. With Questrade, the currency conversion fee is a flat 1.5% on all transactions.
Wealthsimple
Even though Wealthsimple doesn’t allow for Norbert’s Gambit transactions, they do have foreign currency conversion fees if you choose to go that route. These are their current rates:
- $0 to $10,000 – 1.5%
- $10,000 to $24,999.99 – 1.00%
- $25,000 – $99,999.99 – 0.50%
- $100,000 and over – 0.00%
Norbert’s Gambit with Different Investing Platforms
The process of a Norbert’s Gambit transaction depends on the platform you choose to use. Each platform has a different process, which determines the steps you take and how long it will take to receive your converted funds.
RBC
If you trade with RBC Direct Investing, you’ll notice the Norbert’s Gambit process is pretty straightforward. Many investors say it’s the best platform for Norbert’s Gambit transactions. Here’s a look at the process.
With RBC, you’re just going to purchase the version of the ETF in Canadian dollars on the Toronto Stock Exchange. If there’s a US version on the TSX, you’ll sell it there; otherwise, you can sell it as the US version on the New York Stock Exchange or the NASDAQ.
Once you sell it, you’ll receive the funds in USD, which you can then deposit in a USD account. However, when using RBC Direct Investing, you may have to wait up to 2 business days to receive USD funds. That said, it’s only the standard exchange rate that you have to worry about, and there are no hidden fees. RBC is excellent about not charging any fees or having any roadblocks when using Norbert’s Gambit.
BMO
If you want to invest online with BMO, you can use BMO InvestorLine. However, unlike RBC Direct Investing, BMO Investorline doesn’t allow you to complete a Norbert’s Gambit transaction without contacting them first.
First, you want to purchase whichever security you select that trades on both markets. You use the funds you want to confirm to US funds when making the purchase. Once that is done, you have to use the MYLink system to contact BMO Investorline directly. You have to request that the shares purchased in Canadian funds be journaled to the US equivalent. You have to wait for this to be done before you can sell the funds in USD.
Just like with the Royal Bank of Canada, you have to wait for the settlement period before the currency is in your account. Because you have to wait for settlement and journaling times, market volatility could affect the conversion of funds. Plus, you still need to pay any commissions and trading fees that BMO charges.
TD
Another popular investing platform in Canada is TD Direct Investing. While TD offers Norbert’s Gambit, you must work with the platform directly.
How it works with the TD direct investing steps is that you start by choosing the security you’re purchasing. Just like the other platforms, you have to make sure this security is available on both the TSX and NASDAQ. Some will be available on only one platform. Once you’ve picked this, you need to complete the purchase in your base currency.
Once you’ve made the purchase, the shares need to be journaled to sell them in an alternate currency. You do this by contacting TD Direct Investing over the phone or online. Once you’ve contacted them, it can take anywhere from 2 to 4 business days to complete this. Then, you can sell them and have the funds transferred into the correct account.
When dealing with TD, you need to consider any standard trade fees you may incur. You also have to keep in mind that there is a risk of losing money due to the journaling delay. You also need to keep in mind that you must contact TD to complete the journaling process, and it can’t be done automatically like on other platforms.
Questrade
As one of the most commonly used trading platforms for new and experienced investors, Questrade also allows for Norbert’s Gambit. Just like with any platform, you need to figure out which security you’ll purchase and calculate how much you need.
Once you’ve done that, you can log into your Questrade account and complete the purchase. Then you’ll have to get them journaled. You can do this by submitting a request through the online portal. You can do this by following the steps below.
- Find the management page.
- Click on journal shares
- Fill in the online journaling request
- Submit the request
Once this is done, wait 3 to 5 business days for the funds to be journaled. Only then can you sell the shares. Once the trade is settled, which can take another 1 to 2 business days, then you’ll receive the converted funds.
Wealthsimple
While Wealthsimple is a great investment brokerage, they unfortunately do not accommodate the journaling process between CAD and USD, which is Norbert’s Gambit. This means that to change the currency of funds, you will have to pay a 1.5% conversion fee.
Interactive Brokers
With Interactive Brokers, you’re able to use Norbert’s Gambit. However, with they’re low foreign exchange fees, it may cost you more to use this strategy than to not.
Common ETFs Used for Norbert’s Gambit
While there are a few different ETFs you can use to avoid currency conversion fees from USD to CAD or CAD to USD, most investors use the Global X U.S. Dollar Currency ETF. This ETF used to be known as the Horizons U.S. Dollar Currency ETF. Since these are technically the same ETF in both currencies, their ticker symbols are similar. The US dollar one is DLR.U.TO and the Canadian dollar one is DLR.TO.
Canadian investors use this ETF (exchange-traded fund) in their discount brokerage account because it’s listed on a single exchange and issued by the same company. You can buy DLR and sell DLR on the TXS, making it a little simpler to perform Norbert’s Gambit than interlisted stocks.
However, another ETF listed in dual currency is HBM, which tracks Hudbay Minerals Inc. This is a very volatile stock, though, and should not be used for Norbert’s Gambit.
Other Norbert’s Gambit Stocks
While DLR is the industry standard, other stocks also work for this purpose. These include:
- Wise
- KnightbridgeFX
- OFX
Wise is the best bet if you’re looking to exchange smaller amounts for daily spending. KnighbridgeFX is good for large sums, such as real estate or business transactions, and OFX is best for recurring global transfers.
Risks Associated with Norbert’s Gambit
As we briefly mentioned, when converting USD to Canadian currency with Norbert’s Gambit, or the other way around, there’s always a risk. While it can save you money with financial institutions and improve your personal finance situation, you can also lose money in the process of exchanging money in different currencies.
After you spend your margin account funds on your shares and use your limit price, it can take a few days for the journaling process to be completed. During that time, there is a currency risk due to fluctuating stock prices. By the time you’re ready to sell, you could end up with less money in your USD account, since the USD cash price and the stock price can change.
Even though this is a risk that you take with Norbert’s Gambit, many people still choose to use this currency conversion strategy. Most of the time, it can save you a lot of money and help you grow your investments.
The Minimum Amount Worth Using Norbert’s Gambit For
If you’re looking to convert Canadian dollars using Norbert’s Gambit, it’s usually worth it for amounts ranging from $1,500 to $2,000. Using this method for amounts below this can actually be much more costly.
Doing Norbert’s Gambit in a TFSA or RRSP
When you choose to do Norbert’s Gambit in a TFSA or an RRSP, you’re also able to bypass the currency conversion fee. This price difference can then be reinvested. This account allows you to bypass any capital gains. You can even frequently convert; however, withdrawals from your RRSP can trigger withholding taxes.
If you have US dividends that you need to convert into a TFSA to a Canadian account, you will also need to pay a 15% withholding tax. This is because it’s not recognized as a retirement account in the US.
How Norbert’s Gambit Affects Your Capital Gains
How Nobert’s Gambit affects your capital gains in Canada depends on the type of account you’re using. If you’re invested in a registered account, then there will be no tax impact. However, if you’re invested in a non-registered account, then you must report the small foreign exchange gain or loss that occurs while holding the transition securities.
Does Norbert’s Gambit Trigger the Superficial Loss Rule?
Norbert’s Gambit doesn’t trigger the Superficial Loss Rule. The reason it doesn’t is that there is no identical property repurchase, and the currency is settled immediately.
Common Mistakes People Make Doing Norbert’s Gambit
When using Norbert’s Gambit, investors often make a few common mistakes. These can include using market orders instead of limit orders, converting too little money, selling before the shares are journaled, and leaving the currency auto-conversion on with your broker.
How to Track ACB When Doing Norbert’s Gambit
Whenever you’re doing Norbert’s Gambit, it’s important to always keep track of the Adjusted Cost Base. This is because the CRA requires all capital gains and losses to be reported in CAD dollars. You can do this by recording the value of your CAD buy order (market price), noting the day you request journaling and the journaling fees, and calculating gains and losses when selling.
Tax Reporting Requirements
When it comes to reporting Norbert’s Gambit on your income tax return, there isn’t just a flat fee you need to pay; you also need to provide certain information to calculate the correct amount. The information that you need to provide includes:
- The Adjusted Cost Base
- Currency conversion rates
- Capital gains and losses
However, if the transactions are done in an exempt account, then they don’t need to be reported.
